There are 7 risk factors that impact residential property valuation growth and rental yields across the UK. These are
1. Political / Global change
2. Interest Rates
3. UK Economy
4. UK Politics
5. Property taxes
7. Social Mobility
Looking at these factors in turn enables us to analyse how the UK residential property market will look in the next 5 years. Although Brexit has featured heavily in many economic forecasts, the covid-19 situation will have considerably more lasting impacts on UK residential property than the impacts of leaving the EU. Supply still outweighs demand and the UK is a desirable country to live and work in and with a weakening GBP, as after 2008, there will be a flight of foreign money into the safe legal haven of the UK and especially London.
Political / Global change
Covid-19 is causing economic and social upheavals that have not been witnessed in our life times. The impact of a lock down and subsequent change to people's working and social lives will have a correlated bearing on the future direction of house prices and rental yields. Home working will become normal and commercial property will see a sharp fall in demand and long term leases becoming an anachronism. However the demand for home working will see a demand for properties with home offices and gardens following the cabin fever of the covid-19 lock down. Brexit is unlikely to be extended and with the EU struggling to keep its union together it is likely. Risks include climate change and migration.
Interest rates have historically been a key factor in UK property valuations. However Governments and regulators have been forced into a corner with near zero interest rates following the printing of money and other stimulations since 2008. Low mortgage rates and lending against high LTV will see house prices continue to rise in the next 5 years. Most real estate research houses have forecast the same. Risks though include asset bubbles and a dysfunctional stock market causing volatility.
With between 1 and 4 million technically unemployed people in the UK following covid-19 lock down, the Government will need to stimulate the economy. It is likely taxes will fall, in line with most western governments and fiscal stimulus will create many new jobs. Risk include Breixt and trade tensions and unemployment.
The recent uncertainty of a coalition or far left government have evaporated and the UK has a strong middle right government. They are also supportive of UK property as investments and places to live and work. Risks include instability and incompetence.
Stamp duty has had a damaging impact on housing transactions and social mobility. This is leading to a growth in people who want social mobility to living in rental properties instead of home ownership. Risks include Capital Gains tax, second home taxes and rental property taxes/
A pattern is emerging of the older population owning properties and the younger millennials renting, whether from being excluded from mortgages due to the high deposit requirements or a general shift in society becoming a rental model (from mobile phones, cars and music). Risks include migration, ageing society and changes in the way we live.
House prices are based on demand and supply. If there is a need to move about to find work, then transactions will increase. However with the acceptance of home working, people may move from cities into the country. Risks include migration, unemployment and home working.
The aftershocks of Covid-19 will see an accelerating push towards renting property against home ownership. Estate agents and valuers will move towards technological solutions. Prices will be flat for 2020 and then due to pent up demand, valuations will increase over the next 5 years. The UK government will attempt to create inflation and rental yields will increase. Interest rates will stay flat.